When Walt Disney (NYS: DIS) bid $4 billion for Marvel Entertainment in 2009, I called it theft. Disney had bought the fourth-largest licensor in the world for a song, and it would generate huge profits by matching its own world-leading licensing machine to Marvel's underrated properties.
Fast-forward three years. Marvel's The Avengers, the culmination of Marvel's foray into a serial style of filmmaking that closely mirrors its comic-book franchise, has topped more than $700 million at the worldwide box office. Last weekend's $207 million U.S. opening ranks as the largest of all time, no doubt aided by nerds like me who shelled out $40 for a 12-hour marathon of Marvel flicks leading up to a midnight screening of the team-up epic (which I loved as much as many others seem to).
All signs point to The Avengers equaling or even besting Time Warner's (NYS: TWX) The Dark Knight, the only comic-book adaption ever to gross more than $1 billion in worldwide box-office receipts. Mix in licensing revenue from toys, games, clothing, and more, and Disney shareholders should see a bounty of cash flowing from this flick.
Avengers not yet fully assembled
Frankly, the only thing the team of Iron Man, Captain America, Thor, The Hulk, Black Widow, and Hawkeye can't do is bulk up Disney's fiscal second-quarter profits -- not that they needed to. The House of Mouse reported $0.63 in adjusted earnings per share, up 29%, on $9.63 billion in revenue -- a 6% increase. Share repurchases added a fair amount of tailwind; Disney spent $870 million to buy back 21.4 million shares of stock during fiscal Q2, Zacks reports.
Major segments improved nicely. Media networks revenue rose 9% year over year, while parks and resorts grew 10%. Combined, the two accounted for $7.6 billion in revenue -- roughly 79% of quarterly sales. Meanwhile, studio entertainment revenue fell 12%, resulting in an $84 million operating loss, courtesy of megaflop John Carter, which took in just $271 million worldwide despite a $250 million production budget. Studio chief Rich Ross resigned in April as a result. Marvel Studios top executive Kevin Feige is rumored to be a potential replacement.
Here's why that might make sense:
Worldwide Box Office
Domestic DVD Sales
The Incredible Hulk
Iron Man 2
Captain America: The First Avenger
Marvel's The Avengers
Sources: The Numbers; Box Office Mojo.
Before you cry foul, realize that this list only includes films produced by Marvel Studios. Viacom's (NYS: VIA) Paramount Studios distributed all but one of these flicks -- The Incredible Hulk, which was distributed by former license owner Universal Studios. These are the productions Feige had the greatest control over, and their performance as a series is the very model for what Time Warner wants DC Entertainment to achieve and what Lions Gate Entertainment (NYS: LGF) is well on its way to achieving with The Hunger Games, which has already taken in more than $500 million worldwide.
Getting ready for a richer future
For Disney, The Avengers' contribution to both fiscal 2012 and 2013 could be huge. How huge? Look at history. The studio performed best in fiscal 2007 and 2008, years in which Disney benefited not only from new installments in the Pirates of the Caribbean and Chronicles of Narnia franchises, but also big wins from sub-studio Pixar.
In 2007, Ratatouille brought in $620.5 million at the worldwide box office and another $189.3 million in DVD sales. In 2008, WALL-E earned $532.7 million globally and collected another $142.9 million in DVD sales. Disney's studio operating margins came in around 15% in each year. By contrast, last year's margins dipped below 10% after barely topping double digits the year prior. Hits matter.
Disney has another in The Avengers, thanks to CEO Bob Iger's savvy buy of the comic-book king back in 2009. Well played, sir. It's almost enough to make me think your company belongs among this list of American stalwarts, each poised to dominate the world markets they participate in.
At the time thisarticle was published Fool contributorTim Beyersis a member of theMotley Fool Rule Breakersstock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Walt Disney and Time Warner at the time of publication. Check out Tim'sweb home,portfolio holdingsandFoolish writings, or connect with him onGoogle+or Twitter, where he goes by@milehighfool. You can also get his insightsdelivered directly to your RSS reader.The Motley Fool owns shares of Walt Disney.Motley Fool newsletter serviceshave recommended buying shares of Walt Disney. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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